Law firms warned against ‘wait-and-see’ approach as AML shake-up looms

While some firms are still in the early stages of preparation, Nguyen warned that regulators are already signalling a hard-line approach, with no tolerance for wilful non-compliance once the reforms commence on 1 July – and enforcement is expected to be immediate.

“AUSTRAC CEO Brendan Thomas has said there will be ‘no excuses for wilful non-compliance’ and that AUSTRAC is ‘already working with law enforcement and regulatory partners to identify businesses heavily exposed to criminal activity’ – those firms will be targeted from day one,” he said.

One of the biggest misconceptions identified by Nguyen across the legal profession is the belief that the legislation regulates lawyers broadly as a profession, rather than targeting the specific services they provide.

“The single biggest stumbling block is conceptual: Tranche 2 doesn’t regulate lawyers as a profession, it regulates designated services,” he said.

“Under the amended act, a practice falls inside the AML/CTF regime only where it provides one or more designated services with a geographical link to Australia.”

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For firms grappling with this distinction, Nguyen pointed to guidance from the Law Society of NSW, which makes clear that exposure can vary significantly within the same practice depending on the type of work being undertaken.

“The Law Society of NSW’s guidance on Table 6 makes the point clearly: the same firm may have matters that are captured (assisting a client to structure a trust, manage funds, or broker a real estate transaction) sitting alongside matters that aren’t (pure litigation, advisory-only work, most in-house legal services),” he said.

On top of this, he explained that mixed practices handling both legal work and conveyancing must maintain separate risk assessments, warning that the conveyancing and legal profession starter kits are not interchangeable, and a single consolidated program will not comply with regulatory expectations.

“The second struggle is that mixed practices – firms doing both legal work and conveyancing – will need to maintain two separate risk assessments, because the Conveyancing Starter Kit and the Legal Profession Starter Kit aren’t interchangeable,” he said.

“A single consolidated program won’t meet the obligation.”

Waiting now could prove costly

Despite mounting regulatory pressure and the reforms fast approaching, some firms are still taking a risky “wait-and-see” approach, deferring investment in compliance systems until the deadline is looming.

Nguyen stressed that the consequences of non-compliance are far from minor, warning that AUSTRAC has already flagged significant daily infringement penalties for businesses that fail to enrol on time, alongside even more severe corporate penalties.

“AUSTRAC has signalled daily infringement penalties for failure to enrol (in the order of $18,780 per day for companies and $3,756 per day for individuals),” he said.

“Corporate penalties for contraventions reach approximately $33 million, and individual liability can reach $6.6 million.”

Beyond financial penalties, he explained that serious breaches can also attract criminal sanctions, including up to 10 years’ imprisonment in the most serious cases.

“Serious breaches attract criminal penalties, including up to 10 years’ imprisonment, with two years for recklessly failing to verify customer identity or report suspicious matters, and five years for providing false information to AUSTRAC,” he said.

“Directors and principals cannot shelter behind a company structure.”

While the regulatory penalties themselves are severe and carry significant weight, Nguyen argued that the commercial consequences of poor preparation may ultimately be even more damaging in practice.

One of the most imminent risks that he warned about is client disruption, noting that if clients are only confronted with new AML requirements on settlement day without prior notice, transactions can fail, resulting in delays, additional interest costs, and dissatisfied clients.

“If clients first encounter your new AML processes on settlement day – handing over passports and source-of-funds declarations with no warning – deals fall over,” he said.

“Firms that do not prepare their clients in advance may face delays in settlement, accumulate interest charges at the client’s costs, and ultimately, unhappy customers.”

However, Nguyen pointed out that perhaps the most significant risk is reputational damage, warning that in a profession where trust is everything, being named in an AUSTRAC enforcement action could be devastating to a firm’s standing in the market.

“For a regulated profession where reputation is the business, being named in an AUSTRAC enforcement action will destroy the business’s reputation,” he said.

While the scale of change may feel overwhelming for firms racing to achieve compliance before the reforms take effect, he stressed that the transition is manageable – so long as firms move away from a whole-of-firm approach and instead adopt a structured, service-by-service risk assessment.

“None of this is insurmountable, but it requires firms to treat their risk assessment as a structured, service-by-service exercise rather than a whole-of-firm narrative,” he said.